Do I need an accountant to deal with business tax?

It all adds up: an accountant will ensure you have got your tax numbers correct

29 August 2014 • 12:15am

While it is possible to work out your business taxes and expenses yourself, a good accountant will often end up paying for themselves. Find out why.

THE QUESTION:

Graham Shepherd is the co-founder of Peel & Chimney, who serve hand-stretched pizzas and breads from their custom-built oven. They trade at London markets, festivals and private events. He asks:

As a recent start-up, I'd like some advice on VAT, corporation and income tax. Which ones – if any – can I handle myself, and which would be best to get an accountant for?

THE ANSWER:

Rachel Bridge has written five best-selling business books, including How to Make a Million Before Lunch and How to Start a Business Without Any Money, and writes about small and medium-sized businesses for the Telegraph. She replies:

As a limited company you will need to pay corporation tax on the taxable profits of your business and file an annual company tax return with HM Revenue & Customs that includes your business accounts.

You only need to pay VAT once the annual turnover of your business reaches £81,000, at which point you will need to register your business for VAT with HMRC and submit a VAT return once a quarter.

Your business must charge VAT, currently 20pc, on the goods and services it provides and claim it back on any items it buys for the business.

It is not quite that simple, however, as some goods and services are VAT-exempt while others have a reduced VAT rate of zero or 5pc.

In addition, there are several VAT schemes to choose from. Under the flat-rate scheme, for example, businesses with turnover of less than £150,000 can pay a reduced rate of VAT on their combined turnover, but are not able to claim back VAT on purchases.

It is possible to do all of this yourself. HMRC provides sample company accounts and templates on its website hmrc.gov.uk and lists compatible accountancy software providers.

However it can be time-consuming and confusing, so unless you are really confident with numbers it would be far better to get an accountant to work them out for you, at least initially until you understand what is involved.

Not only will an accountant ensure you have got it right, they will also check that you have claimed for all the expenses and depreciation you are entitled to, and make sure you file and pay at the right time.

While many businesses choose to deal with their own VAT returns and payroll for staff, they often turn to accountants to manage their corporation tax and income tax compliance.

Accountants can help you reduce your tax bill by telling you about the various reliefs that are available to you and your business.

For instance, a company could be eligible to claim a corporation tax deduction equivalent to 225pc on certain R&D expenditure that it incurs if it is a small or medium-sized enterprise.

If you plan to deal with the tax compliance in-house, the easiest way is to complete and submit your tax returns via HMRC online services, and make payments electronically.

However, for corporation tax, HMRC's free software only deals with the most simple returns, so some companies prefer to employ an adviser that uses licensed software for submitting corporation tax returns online on behalf of its clients.

Alternatively, your business may decide to purchase more specialised software and take the filing process in-house.

If you would like to find out whether HMRC's free corporation tax software is suitable for your organisation, check the HMRC website.

Some types of business are not covered by HMRC's suite of online software, such as partnership tax returns, so it’s worth doing some research to find out what approach is going to work best for your business.

It is essential that you submit your returns and make payments on time according to the various deadlines, as failure to do so will result in HMRC issuing penalty notices.

Additional penalties relating to tax compliance include those for failing to notify HMRC of your company’s corporation tax liability or to register for VAT on time, and understating the tax due on your returns.

If you make any mistakes when calculating your returns, HMRC will look at why the errors occurred (for instance, whether it was a careless mistake or a deliberate dodge), and charge the penalties accordingly; these can be as much as 100pc of the tax due.

It is a good idea to consult an accountant on the tax opportunities and risks faced by your business at the start-up stage to ensure that you can meet deadlines, take advantage of available reliefs and minimise your exposure to penalties.

With an accountant, you will make sure your business tax is right. Get expert advice in choosing the right company car too – just call the Volvo Car Business Centre on 0345 600 4027 or visit volvocars.co.uk